What are the tax implications for investors, especially regarding the fund's exemption from regular federal income tax?

Tax‑Implications Overview

The Federated Hermes Premier Municipal Income Fund (FM N) distributes income that is exempt from regular federal income tax because it is principally invested in municipal securities. For investors in higher federal brackets, the after‑tax yield can be substantially higher than a comparable taxable corporate‑bond or equity dividend, effectively boosting the fund’s “real” yield. However, investors should still consider state‑tax and AMT (Alternative Minimum Tax) exposure: a portion of the muni income may be subject to state tax (or be tax‑exempt in the investor’s state of residence), and certain bonds (e.g., private‑activity or high‑yield munis) can trigger AMT liability. High‑income or AMT‑subject investors should verify the fund’s composition (e.g., percentage of AMT‑eligible securities) in the latest prospectus or the fund’s “Tax Information” supplement to avoid unexpected tax liabilities.

Trading Implications

From a fundamental perspective, the tax‑exempt nature makes FM N attractive in a rising‑rate environment where investors seek “tax‑efficient” yield. In a high‑tax‑rate environment, the fund’s effective yield can outperform comparable taxable funds, supporting price resilience and potentially attracting inflows, which can lift the share price. Technical signals (e.g., the dividend declaration, a modest positive sentiment score, and a recent upward price trend) suggest the market is already pricing in the tax advantage; however, a pull‑back could create a buying opportunity if the post‑dividend price dip narrows the yield spread relative to similarly taxed alternatives (e.g., Treasury ETFs).

Actionable Insight: For investors in the 30%+ federal tax bracket who are not subject to AMT, FM N provides a higher after‑tax income stream, making a long‑position or re‑allocation from taxable high‑yield corporate bonds worthwhile, especially if the fund’s distribution yield exceeds the post‑tax yield of comparable taxable securities. Conversely, high‑income or AMT‑exposed investors should either limit exposure or balance FM N with tax‑free state‑specific munis to avoid inadvertent AMT exposure. Monitoring the fund’s AMT‑eligible holdings and any state‑tax exemption details will be key to managing the net return.